Q4 2025 Market Outlook

At Linscomb Wealth, our mission is to keep you informed and prepared for the opportunities and challenges that shape your financial journey. As we close out 2025, we’re pleased to share insights from our investment team on recent market developments and what we’re watching as we move into the new year.

Market Performance Update: Fourth Quarter in Review

In our latest quarterly discussion, moderated by President and CEO Phillip Hamman, CFA, CFP®, the group covered important trends shaping today’s market environment. The discussion included Chairman Walter Christopherson, Chief Investment Officer Ryan Patterson, CFA, CFP®, and Director of Investment Strategy Corbin Grillo, CFA.

Full-Year Performance

Diversification contributed meaningfully to portfolio performance throughout 2025, and overall results exceeded expectations heading into the year. While three consecutive years of 20%+ returns is historically rare, the S&P 500 finished the year up approximately 18%. That result came despite a challenging stretch in the first quarter and into early Q2, when the index declined nearly 19% — a reminder that intra-year volatility is not unusual. Historically, markets have experienced corrections of around 14% in any given year over the past four-plus decades.

Market performance across major asset classes was broadly positive for the full year:

• U.S. Equities (S&P 500): Up approximately 18%
• International Developed Markets (MSCI EAFE): Up over 30%
• Emerging Markets (MSCI EM): Up over 30%
• Fixed Income (Bloomberg U.S. Aggregate): Up over 7%

All sectors of the S&P 500 finished the year in positive territory, and the bond market also contributed positively to diversified portfolios.

Technology and AI

Artificial intelligence continued to be a significant area of investment activity throughout 2025, and that is expected to continue. Walter Christopherson noted that while capital is flowing into AI, how quickly the benefits will reach companies outside the technology sector remains uncertain, as building out data centers and connecting them to the electrical grid takes time.

International Markets and the U.S. Dollar

International equities outperformed U.S. equities by a meaningful margin in 2025, with both developed and emerging markets posting returns exceeding 30% as measured by the MSCI EAFE and MSCI EM indices. This reflected a narrowing of the valuation gap that had existed between U.S. and international equities in prior years.

The decline in the U.S. dollar — down approximately 10% for the year — contributed to international performance. Ryan Patterson, CFA, CFP®, pointed to above-trend inflation, policy uncertainty, and concerns around the growing fiscal deficit as factors behind that decline.

The Economy: Growth With Some Areas to Watch

Economic growth was generally solid in 2025, but a few areas merit continued attention. Consumer confidence declined to levels historically associated with recessions, even as stock markets posted strong returns. Corbin Grillo, CFA, attributed this in part to inflation — while price increases have slowed, price levels remain elevated — and to some softening in the labor market. Based on ADP data, four of the last six months of 2025 saw private sector job losses, which may be making it more difficult for displaced workers to find new employment.

On inflation, the administration’s decision to walk back a number of tariffs during the year helped keep price pressures in check. Inflation finished the year below 3%, and the Fed cut rates in December. The Fed has signaled it will remain data dependent, and quantitative tightening has come to an end, which should provide some support for market liquidity going forward.

The Bond Market

The bond market continued to normalize in 2025. Yields are again providing a reasonable cushion relative to inflation — a meaningful shift from 2022, when yields were low and rising inflation was significantly exceeding bond returns. Credit spreads remained well-contained through the year, reflecting generally healthy corporate balance sheets. The Bloomberg U.S. Aggregate Bond Index returned over 7% for the year.

What We’re Watching in 2026

Market Concentration

Ryan Patterson, CFA, CFP®, highlighted that the top 10 companies in the S&P 500 now represent nearly 40% of the index — a level of concentration that is high by historical standards. Looking back decade by decade, there has been significant turnover among the market’s largest companies, and concentrating in the top 10 of any given era has historically led to underperformance relative to a more diversified approach over the subsequent ten years. Our team continues to see value in broader diversification across international, small cap, mid cap, and fixed income where appropriate.

Volatility in a Midterm Year

Walter Christopherson noted that the second year of the presidential cycle — a midterm year — has historically been the most volatile for stocks, with meaningful corrections going back to 1938. Several factors could contribute to near-term market movements in 2026, including a pending Supreme Court ruling on tariffs, a transition in Fed leadership, and ongoing policy developments. At the same time, individual and corporate tax provisions taking effect, financial deregulation, and an earnings growth outlook of approximately 15% for the year are constructive factors the committee is watching.

What This Means for You

As we move into 2026, our investment team remains focused on the factors that could shape market performance in the months ahead. We encourage you to consider how current market conditions align with your financial goals and long-term plan.

Our team continues to monitor:

• Concentration risk in large-cap U.S. equities and the case for broader diversification
• Technology adoption and return on investment beyond the technology sector
• Federal Reserve policy and the path of interest rates
• Employment trends and consumer spending
• Tariff developments and their potential impact on corporate earnings

Please reach out to your Linscomb Wealth advisor with any questions about how these developments apply to your situation. We are here to help you navigate changing market conditions with clarity and confidence.